Kane Biotech Inc Ord

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Kean Biotech's third quarter 2020 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference call will be open to questions. If you have a question, please press star, then 1 on your touchtone phone. If you would like to withdraw your question, please press the hash key. This conference is being recorded today, November 30th, 2020. I'd like to turn the conference call over to Ray Dupley, Chief Financial Officer for Kean Biotech. Please go ahead, sir.

Thank you. Good afternoon and welcome everyone to Kean Biotech's quarterly earnings conference call. We're delighted to have you join us on the call today. This call will cover Kean's financial and operating results for the third quarter ended September 30th, 2020. along with a discussion of some of our recent highlights and goals for the remainder of 2020 and beyond. Following our prepared remarks, we will open up the conference call to a question and answer session. Our call today will be led by CAEN's Chief Executive Officer, Mark Edwards. But before we begin our formal remarks, I would like to remind everyone that some of the statements on this conference call contain certain forward-looking information and statements within the meaning of securities law which may not be based on historical fact, including, without limitation, statements containing the words believe, should, may, plan, will, estimate, predict, continue, anticipates, potential, intends, expects, or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results events or developments to be materially different from any future results, events, or developments expressed or implied by such forward-looking statements. Such factors include, among others, the company's stage of development, lack of product revenues, additional capital requirements, risks associated with the completion of clinical trials and obtaining regulatory approval to market the company's products, the ability to protect its intellectual property, independence upon collaborative partners. These factors should be considered carefully, and readers are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements are made as of the date hereof, and the company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events, or developments. With that, I will now discuss our third quarter 2020 financial highlights. To streamline things, all the numbers I will mention are rounded and are therefore approximate. The following figures are all in Canadian dollars. Revenue from product sales in the three months ended September 30th, 2020 was just under $287,000, an increase of 48% compared to just over $194,000 in the three months ended September 30th, 2019. This is due to higher online sales and a larger customer base in the current period. Gross profit for the third quarter of 2020 was just over $129,000, an increase of 11% compared to just over $116,000 for the quarter ended September 30th, 2019. The increase in gross profit is primarily related to higher product revenues. Total operating expenses for the quarter ended September 30th, 2020 were just over $1,247,000, an increase of 37% compared to just over $912,000 for the same period in 2019. The increase in expenses is mostly related to legal costs associated with the Animal Care Agreement, which was finalized during this period. Loss from operations and finance costs for the third quarter of 2020 was just under $1,031,000, an increase of 25% compared to a loss of just under $822,000 for the quarter ended September 30, 2019. At September 30, 2020, The company had cash of just over $1,272,000. The company recently announced that it had entered into a one-year credit agreement with Pivot Financial Inc. for a non-revolving term loan in the aggregate amount of $1,480,000. The credit facility will be used by Kane Biotech for funding research and development relating to eligible government reimbursable expenditures expenses related to stem animal health, and general working capital purposes. I'd now like to turn the call over to Mark to discuss our recent highlights, as well as our ongoing business and operational objectives. Mark?

Thank you, Ray. I'd like to begin by thanking our employees, our strategic and research partners for all their hard work during a global pandemic and going above and beyond. Secondly, I'd like to thank our supportive shareholders, particularly those who were able to make it on the call today. My view of Q3 2020 is that this was a pivotal period in the history of Kean Biotech as we executed a major step in our commercialization strategy late in the third quarter. I want to take a quick minute to give an update on our strategy and why we believe it's the right direction for Kean and really just a quick blurb on really to take this back to basics. So Really, at the base, Kane is a company that develops products that prevent and disperse microbial biofilm. And really, bacteria can be found in either a planktonic, which is free-floating state, or in a biofilm. In a biofilm, bacteria can thrive in very hostile environments and survive attacks by host immune systems, antimicrobials, antibiotics. Whether you have bacteria trying to attach to a server, where you have bacteria trying to touch the surface, you have biofilm. Because these biofilms are market or industry agnostic, and our technologies have applications against biofilms in general and not applications necessarily in each specific market, our technologies have potential applications in a wide variety of markets. Now, we do recognize that we can't be all things to all people, So we've decided to create industry-specific commercialization vehicles. The objective of the commercialization vehicles is to significantly accelerate the commercialization of our technologies by creating a business in collaboration with a strategic partner who's a market leader in their respective industry. They will not only provide market access. The strategic partner will not only provide market access but capital as well to help grow the business. and that allows us to bring in a dedicated leadership team. We announced in September, now the first step towards creating those commercialization vehicles, we announced in September that Kane would enter into a joint venture with UK-based Animal Care Group to create STEM Animal Care. As part of the deal, the Animal Care Group invested $5 million for a one-third equity stake in STEM and the right to commercialize their products in the veterinary channel outside of the Americas. This opens us up to the European market and creates a new royalty stream for cane, building on our great partnership with Decker Veterinary Products. Following on from that exciting announcement, we are truly fortunate that Kevin Cole accepted the role of President and CEO of STEM. Kevin is well known within the animal care market and is the right person to drive this business forward. With that said, I'm pleased to introduce Kevin Cole on our call today. Kevin?

Thanks, Mark. Hi, everyone. I'll just kick it off by saying, you know, STEM animal health has tremendous growth potential. And just from a macro perspective, you know, the animal health market's been growing globally over the past decade at about a 5% CAGR. And that growth rate is projected to accelerate. You know, there are a number of drivers. We can't get into all of them on the call today. You know, we just don't have the time. You know, but ultimately, there is that growth that is projected to accelerate. The other thing that we keep in mind is that STEM animal health technology, and again, it's by a cane, the current product portfolio, potential product offerings are in categories that are expected to outpace the growth of the total animal health category. And that is true for the next decade. And you take a look at where the next decade is going to go in animal health, and it's an exciting time to be a part of this. Overall, there are positive tailwinds for the animal health business. Now, From that business and from a shareholder value perspective, STEM animal health is in the process of creating value. During my career, I've worked in human oral care and animal health oral care, and I am truly excited about the potential and to really be a part of unlocking the value and the application of the technologies. We are taking steps to do so. We've mapped the market. prioritize the business units within STEM, and we're allocating those resources accordingly so that we are either solidifying the foundation or we're creating the foundation that STEM Animal Health has the ability to then profitably capitalize and scale up the business. We're moving that forward, and really, really, I look forward to future calls where we've got the ability to update you on some of the progress. But for the time being, That's it for me, and I'll turn it over to you, Mark.

Thank you very much, Kevin. We look forward to hearing more from you and the growth you create for stamina shareholders. Turning to our OTC business, we saw the launch of a U.S. and Canadian trial for our DermaKB products, specifically our shampoo. The trial will include over 4,500 participants, and we expect to convert a significant number of them into cane customers. We also anticipate owning our online store later this month in US and Canada. So what's next for Kane? We're progressing with our wound care and surgical commercialization vehicle and we're continuing to make good progress in our search for commercial partners. Biofilms have been front and center in the wound care market which is valued globally at approximately $22 billion. Our wound care commercialization vehicle would firmly place Kane Biotech front and center as an industry leader in commercialized solutions for biofilms in wound care. As a management team, we're energized and excited about our future business and expect the shareholder value. Thank you for your time and interest in Kane. We'll open up the line for questions. Operator, we're ready to take questions.

Thank you. We will now begin the question and answer session. If you have a question, please press star, then 1 on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then 1 on your touch-tone phone.

Yes, go ahead, David. Oh, sorry. I'm cutting you off there, Gigi. Go ahead, David.

Our first question comes from the line of David Kemp from Independent Holding Group. Your line is now open.

It's Independent Trading Group, but that's okay. Your expenses were $1.25 million in the quarter. Do you anticipate that to be the kind of number we should expect going forward, or is this more related to one-off items?

Well, as Ray mentioned, there's a big portion of that that was due to legal costs associated with the creation of STEM and the licensing to animal care. So I think our expenses should maintain around the $800,000 to $900,000, depending on what specifically happens during the quarter.

Could I also ask you, the US shampoo trials, when do they conclude?

At the end of the year. We'll wrap them up just before Christmas.

Okay, so we should have an announcement, I guess, early in the new year to discuss those results.

Well, we'll have shipped the samples before Christmas. We'll continue to receive feedback from the consumers up until mid-month probably in early January. But, yes, we should expect to see some results. And we're hoping to have the store launch happen this Friday, December 4th. So we'll be able to give you some update on the commercial penetration we'll have had with the shampoo sales as we launch. Because we'll have our first sales happen this month.

Sure, sure. On the wound care side, when do you expect to, I don't know, like start moving it forward in earnest? I know you're looking for a partner in that, but is this a Q1 2021 type endeavor, or is it as the year progresses?

I'm hoping that we'll have something to announce before the end of Q2. Probably before that, but at the latest before the end of Q2. And we're making significant progress. We've been talking to A number of potential strategic partners and discussions have been going very, very well. There's a lot of interest in our technology, and as I mentioned, biofilm is a big, big issue in wound care, and there are no good solutions today, and I think we've got some very, very promising technologies with some very promising applications in wound care, and we'll Yeah, we're trying to move this forward as soon as possible, but before the end of Q2 at the latest, hopefully Q1.

All right, well, thank you, Mark.

No problem.

Thank you. Our next question comes from the line of Don Nicholson from DJ Nicholson Planning. Your line is now open.

Hi, Mark. It's Don. Hey, Don. How are you, sir? Good, good. We're having a nice, windy, sunny day out here on the coast, but I want to jump down straight to business. I've got three questions. Sure. First one is, I guess, goes back to the STEM comments. I understand that one-third of the company has been engaged through the $5 million. Does that one-third purchase also subscribe to future cane pipeline products that might be, let's say, invented over the next couple of years? Do they have access to that, or would that be a new contract?

No, that would be... So STEM will be the commercialization vehicle for all our animal health products, and animal care will have... the right to commercialize those technologies in the veterinary market specifically in Europe and Asia and Australia and New Zealand.

Okay. So whether they're existing now or they're researched and invented over the next few years, they have access to the pipeline, let's say.

Yeah, that's it. So the idea is that animal care can guide us as to where the biggest market opportunities are for veterinary biofilm-related elements in animal health. And then as we develop those products, we can certainly hit the ground running to get them commercialized.

Okay, great. And so it's safe to say that the research component may be tweaked by input from the marketing side, as Mr. Cole indicated. Once you get a sense of the market, it might tweak what you're actually researching. right? Absolutely.

The idea is to have the development of the products be market-driven.

Yeah, good. Excellent. Okay. Now, you mentioned about the wound care. When we come to the front of the line, being front and center, without divulging anything, what would make us any more unique than Johnson, some other wound care? There are a number of wound care companies out there? Is it strictly related to our biofilm patent portfolio? Because that kind of intrigued me that we would become front and center.

Well, I think what I'm saying is that we'll become front and center when it comes to treating biofilms in wounds. So right now, we announced earlier this year that we're working with Greg Schultz from the University of Florida And Dr. Schultz and Dr. Walcott have done some research and about 80% of non-healing wounds have biofilm present. And that biofilm contributes to, prevents the healing, contributes to inflammation. And Dr. Schultz has some data that shows that planktonic bacteria doesn't prevent healing, but bacteria in a biofilm does, specifically in wounds. So, By being able to address that biofilm, we can lead to healing. A testimonial of that is that we announced in the previous quarter that we had gotten a $2.7 million grant from the U.S. Department of Defense. I think that's not only a strong validation of the need in the market, but a strong validation of our technology to address those issues. to address those issues. And when we talk to potential strategic partners, it's very, very well received there. Okay. And a lot of interest in what we can offer.

And we are, you know, in parallel to the animal care market, we are with that grant. We are researching the biofilm wound care sector.

That's where the vast majority of our efforts are being dedicated. It wasn't reflected on the time we spent talking about it on the call today. I wanted to highlight the fact that this first commercialization vehicle in animal health is a huge milestone. being able to bring on board a candidate of the caliber of Kevin Cole are two major turning points for Cain and especially Cain's animal health portfolio. And then I think the fact that Animal Care came on board, we were in partnership with DECRA, says a lot about Cain. our technology and portfolio, and I'm excited to see what Kevin can do with our little animal health business.

Great. Good. Well, now that allows me to pivot to a potential third point, and we have spoken about this before, and I'm actually at this point begging, if that's the correct word, for a revisiting of our website. It's, you know, given the fact that we've been in more or less semi-lockdown with COVID, people are turning more and more to the net to investigate companies and research companies. And I have, you know, you know, my feelings on this, but I, I do want to underscore, you know, maybe I'm way off target. Maybe the board has a different perspective or maybe Kevin could take a look, but, you know, to still have even, you know, to still have record video recordings of, you know, Mark Terrence Townsend on the website and, is, you know, I mean, it's got to be.

Donna, I'm going to, I couldn't agree more. I couldn't agree more. I think we're long overdue.

It's beyond that. I mean, when you go through it, it needs a shakeup because, you know, when you go to the awards section, The awards, I'm just picking little things in particular, but the awards we're speaking to on the website are from 2009 and 2011. Like in 30 days or so, that's going to be a decade old. So, yeah, and I've sent you a separate email on that anyways.

I completely agree, Don, and it will be one of the top priorities. Jonathan Patterson, who's from Harbor Access there, we've been putting the pressure on him to get us his recommendations, and we'll be moving forward with that before the next time. Before the next – it will be done before our next call, Don.

All right. I'll be looking forward to that. Because it does mean so much these days with people mainly doing stuff on the net, right?

I completely agree. I completely agree.

Anyhow, I didn't want to end on a sour note, but I wanted to get that out there for the record. And some – you know, I know you can't put some of the grant money or any of the other money to it, but we should make that –

No, no, you're right, and we will be correcting that situation shortly.

That's super. So I wish you all the best. I guess we won't be talking until 2021, so wishing you the best for the new year, well, and the company and all the shareholders that have been in for the long haul. Thank you, Don, and good luck.

I want to reiterate there, I know you know this, but I want to reiterate how an important step forward the creation of STEM was, and as we move forward with the creation of cane wound care, that'll be another major step in the right direction there. So we've We've done a lot in the last couple of years, and there's lots more to come. So I'm excited about what we've done, and we'll... Totally appreciate it.

And, you know, we weren't on a Zoom call, but I get the impression that Kevin's a go-getter. So there we go. So I got to... Yeah, yeah.

No, absolutely.

Absolutely.

Take care.

Yeah, thanks for taking the call.

Thank you, Doug.

Bye. Thanks.

Thank you. Once again, if you have a question, please press star, then 1 on your touchtone phone. Our next question comes from the line of Joe Brown, an investor. Your line is now open.

I just got a question, just a general interest one, really. How do you market something like a dandruff shampoo? Because you can't really get a celebrity to go out and stand up and say, well, I've got a big bad dandruff problem. Anyway, just kind of a general interest question, that's it.

No, really what we've been – so we – I'll talk about our trial that we did in – our consumer trial that we did in the spring, or late winter, early spring, is that what we did is we created some Facebook ads and asked people to sign up to receive a sample of our shampoo. And really, we didn't pay them anything, we didn't cost them anything, but they had a pretty thorough questionnaire to fill out about their dandruff and irritation and redness and itchiness and so on and so forth in their scalp. And the people that we felt we could help based on the answers to those questionnaires, we shipped them some samples. And about 70% of them, 85% of the people that tried it saw an improvement in their condition. About 75% said that they would go out and buy this shampoo. So really what we're looking to do is start with a direct-to-consumer approach, do some Facebook ads, which we can get people to sign up for less than $2, I think, is what our price point is now. And then Once they fill out the questionnaire and we get the answers and we see who we convert to buyers, we can really narrow down who we ship the samples to and really shipping a sample becomes part of our customer acquisition cost. So once we've identified exactly who's going to buy, once they've tried the shampoo, because we've identified what issues we can address, then it becomes, we leverage really social media to get the acquisition on board. And we've been, David Camp who asked the questions earlier has been using the shampoo for a long time and it's the one that really pushed us in the direction of having a broader audience try it because it's, I believe it's something that's worked well for him and better than anything else that he's tried previously. And we do know of some celebrities that do have a dandruff problem and aren't embarrassed about it in any way. So that's one of the next steps there. We were talking about that earlier to see how we get some Some major celebrity and some minor celebrity endorsements. But that's where we're going.

Yeah, that's good. Thanks.

Good.

Thank you. At this time, I'm showing no further questions. I would like to turn the conference call back over to Mark Edwards for closing remarks.

Thank you, everyone, for joining us today for Cain Biotech's third quarter 2020 financial results conference call. We appreciate your interest in Cain and look forward to speaking with you again in the very near future. Thank you very much and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.